The Federal Trade Commission (“FTC”) recently issued a report to address mobile “cramming,” the unlawful practice of placing unauthorized third-party charges on mobile telephone bills.

Background of Mobile Cramming

As technology has developed and the use of mobile telephones is rampant, consumers are now able to pay for goods and services using their mobile phones.  As the FTC has noted, with convenience often comes fraud – particularly when consumers are signed up and billed for third party services, such as ringtones and recurring text messages containing horoscopes, without their knowledge or consent.  The FTC has obtained judgments against alleged crammers totaling hundreds of millions of dollars.

The FTC’s Recommendations

The FTC’s report provides best practice guidelines for mobile carriers, merchants who offer goods and services that are charged directly to mobile phone bills, as well as the billing “aggregators,” or intermediaries between the carriers and merchants, that facilitate the placement of such charges on consumers’ bills.  Below is a summary of the report:

Giving consumers the right to block third-party charges.  The FTC indicates that when a mobile account is opened, mobile phone carriers should give consumers the right to block third-party charges on their mobile bills altogether, and to inform consumers clearly and prominently of that right.  Carriers should inform consumers of this right on an ongoing basis.

Ensuring that advertising, marketing and opt-in processes for charges are not deceptive. The FTC indicates that advertising, marketing and opt-in processes for third-party mobile account charges should be clear with respect to the amount and frequency of charges.  Mobile carriers should closely monitor the merchants that place charges through mobile billing and, if necessary, take steps to discontinue their ability to bill through this mechanism.

Getting express, informed consent before charging consumers.  The FTC indicates that consumers’ express, informed consent must be obtained before placing charges on their mobile phone bills, and reliable records of that consent should be maintained.  Carriers should closely monitor refund rates and consumer complaints, and take action where necessary.

Clearly displaying third-party charges on bills.  The FTC indicates that mobile bills should clearly and conspicuously list third party charges, including separate line items for third party charges, that highlight which charges come directly from the carrier and which are from a third party.  In addition, mobile carriers should give consumers using pre-paid calling plans (and who do not otherwise receive mobile bills) the ability to receive specific notifications when a third party charge is being deducted from their account.

Creating an effective process for resolving disputes.  The FTC urges mobile carriers to put an effective dispute resolution process in place that provides clear information to consumers about how to dispute suspicious charges and seek associated refunds.

Takeaway

While not legal requirements, per se, the FTC’s recommended “best practices” must be followed at the risk of facing legal action.  For anyone in this space, it is important to stay abreast of new developments and to understand the state and federal laws applicable to mobile telephone billing, as well as the Mobile Marketing Association’s own set of guidelines.